Hockey gets credit for bolstering investor confidence

Markets have taken their cue that world leaders will better coordinate fiscal and monetary policy. In reality, it’s unlikely the US Federal Reserve will be deterred from its chosen course.
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“Talking about boosting economic growth by 2 per cent over the next five years and putting to rest any discussion about austerity whatsoever, all those things are suggesting we are going to try and stimulate the US economy and global economy, which will lift up the emerging markets," Chan said.

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Chan’s statement unwittingly highlights a dichotomy between the G20 chairman Mr Hockey and his counterparts.

Chan’s impression is that world finance ministers are not going to persist with savage spending cuts which have hobbled growth in the US and Europe. That is certainly true for the US, with President Barack Obama flagging that next month’s budget will focus on “investing" rather than cuts.

Hockey on the other hand has the audit of commission’s report in his keeping and is signalling harsh spending reductions in the May budget.

Nevertheless, markets have taken their cue that world leaders will better coordinate fiscal and monetary policy. In reality, it’s unlikely the US Federal Reserve will be deterred from its chosen course. At best, Fed chair Janet Yellen will shout out its plans to emerging economies, which arguably she has already done.

The quick rebound in the share market is more than a little surprising. Since the January sell off, US economic statistics on jobs, retail, manufacturing and housing have continued to disappoint and the Fed has appeared more emboldened to wind down its $US4 trillion money printing program.

While the turmoil in emerging markets has stabilised, the major underlying problems of inflation, large current account deficits, a lack of economic reform and political uncertainty have not gone away.

How long this game goes on is almost impossible to know. But if world markets really are rallying on the back of the G20 Communiqué, investors better hope that world leaders show more resolve in following through on bold reforms than in previous years.